If you’re currently looking for a new job or trying to calculate how much child support you’ll be required to pay, knowing your total annual income is a critical component in your application and negotiation processes.
So, what is a total annual income?
Gross annual income is the total amount of yearly income earned by the company, excluding any taxes paid. Net annual income is calculated by taking the company’s gross income and subtracting business expenses like rent, payroll, and utilities. In layman’s terms, the gross annual income is the amount of money earned throughout the fiscal, or a year’s, period. Net annual income is calculated by taking the company’s gross annual income and subtracting expenses such as rent, payroll, and utilities.
Many believe that this is the amount of money they will take home as salary, but this is, in fact, (and often far) less than their total gross annual income. Many will not realize that this figure is listed on the form of a new job offer.
When filing your taxes, you’ll be asked for this figure first, as it’s the basic calculation for your tax payment or tax refund. Also, if you’re ever applying for a mortgage, credit card, or a loan, you need this figure for the bank to decide whether you have enough to pay it back. And for business owners, this is the figure that shows the company’s revenue before staff and bills deductions.
Your net income includes the tax, the deductions, and the salary packaging. It’s the net pay, and it’s considered the more valuable figure because you get to keep all of it.
How To Calculate Your Annual Income
Calculating your yearly gross income is easy. For income tax purposes, look at your gross income, which is everything you make in one year from all sources. Okay, that doesn’t sound terribly interesting, but it actually can be. Let’s say you make $4,000 a month. Here is how that translates for income tax purposes: $4,000 a month = $48,000 a year Your annual gross income is calculated by adding your monthly income to your previous earnings—and finding the sum. This sum is then divided by 12 (number of months) to get a monthly figure, which is your gross income. ###
To convert to yearly income depending on the way you get paid:
Multiply your hourly wage by the amount of hours you work in a year. If you work full-time (8 hours a day, 5 days a week, 52 weeks per year), you’ll have worked a total of 2,080 hours by the end of the year.
Multiply your monthly income by 260 to calculate your annual income.
Simply multiply your weekly income by 52 if you earn the same amount of weekly pay for each week of the year.
Now divide your monthly income by 365 if both your paychecks and your pay dates were the same each month of the year. Otherwise, simply take all of those checks and calculate what you’d make if you got paid each day instead of once a week.
Unpaid days off are a perk, so if you can get them it’s probably best not to hesitate to take them. However, all 52 weeks of the year are not paid for holidays. Most employers, however, offer a minimum of two weeks for paid holidays.
And by what other sources of income do you make money in addition to your main job?
In order to calculate your income for a loan application, you must take into account all of your sources of income, including any savings you have. Note: any loans you have here should not be included as income.
Calculating the average annual expenses after taxes
The formula above will give you your yearly gross income. From there, you can figure out your deductions. For this purpose, you should be familiar with the US tax system.
First, it should be noted that “income taxes” are not the same as “taxes.” Taxes are different from income taxes. “Income taxes” are taxes deducted from your gross income. Your gross income is your total yearly income from all sources including salaries, wages, rental income, dividends, job-related stock options, and other income. This total will also be the number shown on “the W-2’s.”
“Taxes,” on the other hand, are taxes that you must pay to the Federal government. These usually include income, Social Security, and Medicare taxes along with federal gasoline and motor vehicle taxes. There are some additional state taxes including sales tax, individual taxes, and corporate taxes that are also part of the equation but they are not a major part of the example being discussed here.
Additionally, unlike income taxes, taxes are not a fixed amount. The tax amounts are variable and are calculated based on a number of factors such as your gross income and your filing status.
Earning more money could also mean that you pay more in taxes! Each of the seven federal tax brackets are progressively higher based on how much money you earn, starting at 10% and ending at 37%.
Some states have a flat income tax and some others have a graduated income tax. Flat tax rates range from 3.07% to 5% while graduated rates top out around 13%-14%. Some even have 0% income tax such as Alaska!
Social Security Tax applies only on the first $102,400 that you earn. The current rate for employees is 6.2%.
Medicare tax has two main tax brackets, 1.45% for the first $200,000 earned and 0.9% for the remaining.
Calculating your annual net income is a little tricky, especially if your wages fluctuate depending on tips, commissions, or other incentives. However, it can be broken down into two simple terms: 1) your annual net income, and 2) annual expenses. Discussing these two figures with your accountant will help you figure out what amount of cash you can use and which expenses you can deduct from your annual pre-tax income.
That’s right. Now you know the answer to the question “What is your total annual income?”.
This is the important information you need to know to calculate your yearly salary before or after tax deductions. Knowing your yearly salary meaning, you’ll be able to manage your monthly expenses, file your taxes and apply for credits. To sum up, don’t be afraid and get on the slopes to calculate your income this year.
Frequently asked questions
What is net income?
Net income is the total amount of money that a company earns in a given period of time after accounting for all expenses, taxes, and other forms of deductions.
What is gross income?
Gross income is the total income earned by an individual before taxes or other deductions. This includes income from employment, interest, dividends, pensions, and other sources.